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This year, Global Finance held its digital banking and innovators’ conference in the United Arab Emirates. Why? Because the Middle East is on the brink of unprecedented technological change, and Dubai is where much of the transformation is cooking: from digitization of banking services, to new technologies tailored for new customers, to cutting-edge fintechs.

The September conference provided an occasion to gather some of the leaders who have already stepped into the future of digital banking. Over 200 high-profile bankers, entrepreneurs, consultants and support organizations attended to share experiences as well as discuss the challenges and growth prospects in advancing technology in the financial sector of the Middle East and North Africa region (MENA).

How far to go in adopting innovations? Whom to partner with, and how? How to fold fintech into the structure and culture of a large, complex organization, in many cases with a long tradition of its own? How to address the (inevitable) concerns of a fragmented regional regulatory landscape? These were some of the challenges the conference addressed—along with the opportunities.

Omar Christidis, founder and CEO of ArabNet (and Global Finance’sMENA Innovator of the Year) opened the conference with the latest data his teams have gathered about the state of financial technology in the MENA region. Today, there are more than 100 fintechs operating in the Middle East, he said. Since 2012, the number of specialized start-ups has been growing exponentially, with 20 new launches in 2017 alone. About a third of the region’s fintechs are located in the UAE, 18% in Egypt, 16% in Lebanon and 10% in Jordan. Together, these four markets make up over 75% of the MENA fintech sector.

The UAE, Jordan and Saudi Arabia are the most mature fintech markets, with an average ticket size of $3 million to $5 million each. Lebanon and Egypt are in a relatively early stage, with average capital injections between $250,000 and $500,000. “We expect these markets will rise as those start-ups mature,” Christidis said.

Partnering Up

Fintechs aside, Middle East financial institutions are still reluctant adopters of digital.

“The biggest challenge banks are facing is themselves. We are not adapting as fast as we should,” said Aref Al-Ramli, head of digital banking and innovation at Mashreq Bank. That’s not to say they do not welcome the idea of innovation. While their approaches vary, most banks are looking for ways to support innovators and develop partnerships. One attraction of the bank-fintech relationship that most panelists cited is flexibility. “Different fintechs can help us solve different problems. You can pick and choose the right partnerships according to your needs,” said Seham Hanif, head of digital banking, UAE, at Standard Chartered.

Day to day, however, collaboration can be difficult. Throughout the panel discussions, it became clear that well-established banks and upstart start-ups seldom share the same management culture or speak the same corporate language. For eager tech entrepreneurs, the banking sector simply isn’t moving fast enough; while stability-conscious bankers argue for caution in taking up new systems and processes.

“You’re doing a great job with your digital interface. It looks like Facebook, but you’re still selling the same product,” said Padmini Gupta, co-founder of the online financial-services platform Rise.

“Fintechs are speedy guys; but as a bank, we need to put this in a legal framework that can be approved by a regulator—and only then can we come up with a product that we can sell,” cautioned Mohamed Farag, chief digital officer (CDO) and head of Global Transaction Services at CIB, one of Egypt’s largest banks.

Changing Culture

Integrating fintech elements is not just a technical challenge, but also a structural and cultural one. “The change needs to result from a top-down approach. You need to reorganize the house before you can welcome the guests,” said Serhat Yildirim of Abu Dhabi Islamic Bank.

A new entrepreneurial culture is already drastically changing the Middle East. The rapid growth in the region of venture-capital firms, accelerator programs and incubators is pushing to create an ecosystem that fosters innovation. Fintech is attracting lots of attention with the creation of dedicated operations such as FinTech Hive in the UAE; FinTech Bay in Bahrain; and the partnership between the US-based platform Plug and Play and Abu Dhabi Global Market.

Banks are now more active in promoting innovation. Some have launched their own start-up competitions or participate in creating venture-capital (VC) firms. Jordan’s Arab Bank, during the conference, became the first bank in the region to announce its own $30 million fintech accelerator program and VC fund. The fund will inject some $1 million to $3 million into promising companies, while the accelerator offers $250,000 in funding to early-stage projects.

“Of course, what we look for are companies that will address a problem at the bank,” Eric Modave, executive vice president and COO at Arab Bank, told conference-goers. “We’re not just doing that to experiment.”

Regulation's Big Challenge

Most start-ups, banks and investors agreed about regulation, which they identified as their biggest challenge, especially when they are looking to scale across the region. “We’ve invested in four fintech plays out of 40,” said Walid Hanna, founding partner at Beirut-based VC fund MEVP. “The problem has always been the lack of quality deal flow and the regulatory framework,” added Hanna.

But this is, in part, a function of the plethora of governments and business cultures in the region and the lack of integration throughout. Max Di Gregorio, partner in the technology practice at PwC said that if the MENA region is so hard to navigate, it is because it is so diverse—over 20 countries, with huge disparities in size, market maturity, availability of capital, income levels and even internet penetration, and not even a regional bank in the Middle East.

Owais Manzoor, regional sales head at PayTabs, one of the Middle East’s most successful start-ups, reviewed his company’s experience as it works to operate in five different markets. He said that each new market requires starting from scratch in a completely new regulatory environment. For banks and companies looking to scale regionally, he added, the advice is to take it slowly, one country at a time.

In an area where Islamic finance has significant market share, fintechs must consider whether to provide Shariah-compliant services. The answer seems to be yes, if the opportunity is ripe enough.

“For us it’s increasing the options. There are huge opportunities in markets like Saudi Arabia, Egypt and Southeast Asia,” said Craig Moore, founder and CEO of Beehive, a Dubai-based peer-to-peer lending platform that offers loans to small and medium-size enterprises.

“We didn’t do it because we automatically thought of going global, but there is definitely a huge opportunity on the equity side,” said Sam Quawasmi, co-founder and co-CEO of equity crowdfunding platform Eureeca. “Whenever there is a sukuk [Islamic bond] issued, it’s always oversubscribed.”

Keep Tech Simple

Financial innovation is a broad term that covers a wide range of technologies, from simple peer-to-peer lending platforms to artificial intelligence, robotics, biometrics and cryptocurrencies. Despite their credentials, the panelists admitted it can be hard to discern the bankable options.

“Sometimes there is too much new technology. There is an element of confusion with not being able to pick something quickly enough,” said Navin Gupta, managing director of South Asia and MENA for Ripple.

“Are you ready to fail when you pick up a new technology?” asked Abu Dhabi Commercial Bank’s Isaac Thomas. “The fear of failing and trying again is something new in the MENA region. There needs to be a change in mentalities.”

ArabNet data show payments and retail financial services stand out in both number of start-ups and value of deals, with several companies in these segments raising $10 million and above. Wealth management and digital banking are also attracting entrepreneurs and investors, but to smaller deals. “These are early-stage investment areas one should look out for,” said Christidis. Although a significant topic at the conference, consensus was that technologies like blockchain and cryptocurrencies are not yet a priority.

“The Middle East, Africa and Asia are in the first wave of payments technology. Fintechs are focusing on how to transfer and lend money,” said Tanvir Shah, managing director at The Partnerships Consulting. “This is where the added value is.”